(MENAFN- Investor Ideas) Investorideas, a go-to platform for big investing ideas releases market commentary from by Samer Hasn, Senior Market Analyst at XS
Oil prices are slightly higher today by around 0.3% after a volatile day for both major crudes, brent and WTI, which managed to rise to their highest levels in more than a week yesterday.
The recent gains in crude came amid optimism about the effectiveness of support packages and Chinese government measures in boosting economic growth, which will positively impact the outlook for oil demand. However, the forecasts of major oil bodies regarding the future of the market remain mixed, as we have seen in light of the series of reports this week.
The International Energy Agency (IEA) raised its forecast for crude demand for next year in its December report by 1.1 million barrels per day to reach 103.9 million barrels per day. The US Energy Information Administration (EIA) in its Short-Term Energy Outlook maintained its forecast for global consumption growth to 104.3 million barrels per day in 2025 from an estimated 103 million barrels for the current year, as well as expectations for demand from China, which is estimated to reach 16.4 million barrels per day, up from 16.5.
In contrast, the Organization of the Petroleum Exporting Countries (OPEC) had lowered its forecast for crude demand growth by 90,000 barrels per day to 1.4 million next year, reaching 105.27 from 103.82 million for the current year. While OPEC remains optimistic about crude demand from China, which is expected to grow by 310,000 barrels per day next year to reach 17.1 million barrels. This comes in light of the positive impact of government support and the push from the transportation sector.
The discrepancy in expectations between them and what may be in the future may come from factors that may be difficult for econometric or mathematical models to accurately capture, especially those that are not quantitative. The recovery in demand for crude is closely linked to the recovery of the Chinese economy, which will in turn need government support.
While government support is not necessarily limited to the financial or monetary side that can be measured, it may include reforms that cannot be expressed in numbers, such as plans to reform the social system "hukou". These reforms may also cause structural changes in the economy, which may make current forecasts less accurate. Other factors that models cannot control are geopolitics, which may affect both demand and supply, in addition to political changes represented by trade wars, the features of which we do not yet know precisely - they may not be at the level that Donald Trump has threatened since his election campaign.
Therefore, markets may remain subject to volatility with the ongoing divergence in predictions, which may tend to correct themselves when new information arrives, most notably what will come from China regarding the actual crystallization of the impact of government support - which may be difficult to measure early.
As for the geopolitical side, specifically regarding the Middle East, as I have repeatedly said this week, developments in the region may have less impact in the coming period. While the bullish factor could come from the reestablishing of severe restrictions on Iranian oil exports when Donald Trump returns to the White House, I do not believe we will see an escalation that could eventually disrupt crude supplies from the rest of the region.
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